An open-market sale of Treasury bills by the Fed not only reduces the money supply but also
A)Lowers T-bill prices and raises interest rates.
B)Drives up T-bill prices and pushes down interest rates.
C)Lowers T-bill prices and pushes down interest rates
D)None of these.

Question

Quizplus · Accepted Answer

When the Fed sells Treasury bills, it decreases the money supply, which causes interest rates to increase as the demand for money increases. This, in turn, lowers T-bill prices because there is less demand for them. Therefore, A is the correct choice as it aligns with the actions of the open-market sale and their impact.

An Open-Market Sale of Treasury Bills by the Fed Not